Medicare's prescription drug stages explained.
Now that we’re almost 5 months into the year, many people will notice their prescription costs go up when they pick up their meds from the pharmacy. More often than not, it’s because they’ve fallen into the dreaded coverage gap- often referred to as the donut hole. Most members on Medicare have probably heard of the term coverage gap or donut hole, but may not be familiar with how it works or how one may end up there.
There are 4 stages of coverage when it comes to Medicare’s prescription drug plans (PDP’s).
Stage 1 is the deductible phase. This is going to be the amount you’ll pay the first time you pick up your prescriptions following the start of a new plan. Many PDP’s have deductibles, but some do not. Be sure to know whether your plan does or does not have a drug deductible. You’ll pay the full cost of your prescriptions until your drug deductible has been satisfied.
Up next is stage 2, or the initial coverage period. This is immediately following the satisfaction of a plan’s drug deductible, or it is the first stage of coverage if your PDP plan does not have a drug deductible. During this coverage level, you’ll pay the negotiated portion of your Medicare covered prescription drug costs, and your plan will pay the rest. The amount you’ll pay for your prescriptions will be dependent upon which tier level each drug has been assigned. To find out which tier a specific prescription falls under, you can call your plan’s customer service number on the back of your card, or contact your insurance agent. This coverage level will end when you and your drug plan have spent a collective $4, 020 on covered prescription costs.
Then you’ve reached stage 3, which is called the coverage gap (or the donut hole). Once you’re in the coverage gap, your prescription costs change. Per Medicare, you’ll pay no more than 25% of brand name and/or generic drug costs. Not everyone who is enrolled in a PDP plan will reach the coverage gap; it’s all dependent upon an individual’s prescription drug list. Note: if you’re receiving extra help for prescription costs, you will not have a coverage gap or catastrophic phase.
After you have paid $6,350 in out-of-pocket costs for covered prescriptions, (this time the amount is the total you have paid, not the total you and your plan have collectively paid), you leave the coverage gap and reach stage 4, which is the catastrophic coverage phase. During this time, your prescription copays and coinsurances will be most likely be significantly lower for the remainder of the year.
To recap how someone reaches the catastrophic coverage, the following out-of-pocket costs are included:
your deductible
the prescription copays/ coinsurances that were paid by you and your insurance company during the initial coverage stage
the costs of prescription copays/coinsurances that were paid during the coverage gap
amounts paid by State Pharmaceutical Assistance Programs
Monthly plan premiums, OTC medications and non- covered prescriptions are all costs that will not be counted towards your coverage or expenses. If you’ve incurred a Medicare Part D late enrollment penalty, you may end up paying an additional amount per month on top of your prescription drug plan premium. If you have questions concerning that, you’ll need to call 1-800-MEDICARE (1-800-633-4227).
Your Part D plan is required to keep track of how much you’ve spent in out-of-pocket expenses each month. You should receive paper or digital statements that calculate your costs, how much the company has contributed, and which coverage period you’re in.
I hope this has shed a bit of light on how Medicare’s prescription drug stages are structured. If you have any questions about your plan, the different stages of it or anything else, reach out to your local agent and ask. We’re here to help!
Be well!